Diary

Crony Capitalism or Just Big Government Growing More Government?

If there was any one issue that candidate Barack Obama embraced and promised to pursue if he became president it was the promise of an open and transparent government. The country expressed its support of this promise by a wide margin. But a recent Wall Street Journal article, “FCC Encourages Media Companies to Provide Confidential Complaints on Time Warner Cable Purchase”, uncovers how far this Administration and the FCC have drifted from that promise. The rent seekers have come running.

In economics, “rent seeking” occurs when companies leverage government agencies to grab a portion of existing wealth rather than expending resources to create wealth. This increases government power as the government becomes the device for grabbing market share. Meanwhile virtually everything else suffers as this scheme is very poor at allocating resources and hampers the formation of capital to be invested that would generate further economic growth.

Now a new twist has been added to this already distasteful scheme. In the FCC’s new imagining of its authority, the government agency apparently actually reaches out to companies who are competitive with, or have dealings with, a company that is at the mercy of the agency as it awaits their review of a transaction. The deal is sweetened by the FCC promising that the communications will be kept secret from the public.

Companies are joining in the pact to push their concerns and argue for the government to weaken their competition. But the specifics of their concerns are irrelevant. The federal government should be open and transparent, not engaging in secret back room meetings, away from public scrutiny. So how can the FCC act in such a cagey way?

The FCC’s rules provide an exception to the agency’s dealings being made public when, “The presentation is made pursuant to an express or implied promise of confidentiality to protect an individual from the possibility of reprisal, or there is a reasonable expectation that disclosure would endanger the life or physical safety of an individual.” Who are these cowering “individuals” fearing for their life or physical safety? As reported, Discovery Communications Inc., and “several big media companies.”

So scared are these big media companies that they could not bring themselves to file comments about the Comcast-Time Warner Cable transaction for fear of retribution. Yet, they have no concern about confirming that they “intend to ask the FCC for a number of conditions should it approve the merger” once they are in secret meetings with the FCC. So it would seem that in fact they have no fear of reprisal. No matter how you slice the rules the exception here comes up empty.

Rent seekers are bad enough but when such action is encouraged by government, the result is, to say the least, odious. This is business by government leverage. The results are a government agency providing the government favored company a better deal than it could legitimately win in the marketplace, and FCC grabbing more power than it could gain through the legislative process and the will of the public.

Secret meetings. Back room deal making. Crony capitalism. Private reports from government favored informers. Is this your government being open and transparent? Is this what the country voted for in 2008? Time to let the sun shine in!